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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA

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To: yard_man who wrote (16079)	2/5/2003 8:48:17 PM
From: macavity	Read Replies (1) of 19219

Statistics do provide a framework. The issue is to use them correctly. That was all I was saying. We have two low probability events. p(3yrsDown) p(4yrsDown) People - Da Bulls- are looking at the wrong event. We are in a 'tail' condition and what we find at tails is a high degree of 'auto-correlation' - i.e. trending-type behaviour. A good example was Naz2k. How many days did it go up! "Oh my God, it is up 8 days in a row - I gotta sell this POS" What the person is saying in his mind is - "How likely is it that the Nazz will be up 9 days in a row". Low. The catch is he should have said it on day 0 not day 9. What the person should be saying in his mind is - "How likely is it that the Nazz will be up tomorrow given that we have just had 8 up days in a row". People - no surprise - are using statistics incorrectly to justify their trading/views. In fact - if you have enough daily data say 40 yrs plus of $SPX of daily data (and the inclination) you could test the statement. The possibility of another 'up/down' day given that I have had n 'up/down' days already. -macavity

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